The US crackdown on Bitcoin has been long in coming, with ebbs and flows of enforcement as regulators have been unsure exactly how to proceed with dismantling the digital fiat alternative. This morning the ebb became a rising tide, after U.S. prosecutors announced charges against two men operating Bitcoin exchange businesses for attempting to sell $1 million worth of Bitcoin to users of the underground black market website Silk Road, which was shut down by authorities in September.

Reuters reports that the U.S. Attorney's office in Manhattan said in a statement that authorities arrested Charlie Schrem, chief executive officer of the exchange BitInstant.com, on Sunday and Robert Faiella, who ran an underground Bitcoin exchange called BTCKing, on Monday. The two were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. Schrem is also vice president of the main Bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation's website and Schrem's LinkedIn profile.

Some details from the charge against the defendants:

Federal prosecutors charged Faiella, 52, and Shrem, 24, with engaging in a scheme to sell more than $1 million of Bitcoins to users of Silk Road. Each defendant was charged with conspiring to commit money laundering, which carries a maximum prison sentence of 20 years. They are additionally charged with operating an unlicensed money transmitting business, which has a max sentence of five years in prison.

The U.S. also charged Shrem with violating the Bank Secrecy Act by “willfully failing” to file suspicious activity reports on Faiella’s questionable transactions. This charge carries a maximum sentence of five years in prison.

In addition to the Manhattan U.S. Attorney, the charges were announced by the Drug Enforcement Agency and the criminal investigation division of the Internal Revenue Service.

“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.

Schrem was apprehended by authorities at JFK International Airport in New York on Sunday and is set to appear in federal court in Manhattan later on Monday. Faiella was arrested at his Cape Coral, Fla., home on Monday and is expected to appear in federal court in the Middle District of Florida.

The court documents allege Faiella operated an underground Bitcoin exchange on the Silk Road website between December 2011 and October 2013 that sold the crypto currency to users who wanted to buy illegal drugs on the site. After receiving orders, he filled them through a New York company designed to enable customers to exchange cash for Bitcoins anonymously, the U.S. alleges.

Shrem served as the New York Bitcoin company’s CEO during much of that timeframe and was “fully aware that Silk Road was a drug-trafficking website” and that Faiella was operating an exchange service for Silk Road users, the documents say.

Prosecutors say Shrem still did business with Faiella to maintain a “lucrative source” of revenue. He personally processed Faiella’s orders, gave him discounts on high-volume transactions, failed to file a single suspicious activity report and even helped Faiella “circumvent” the company’s anti-money laundering policies, the documents allege.

Bharara said the investigation remains ongoing.

As a reminder, BitInstant, which at the time "aimed to be the go-to site" to buy and sell bitcoins, received a $1.5 million investment by Winklevoss Capital in May 2013. From the TechCrunch profile of the startup:

BitInstant, which has a full-time staff of 16 led by CEO Charlie Shrem, has emerged as a key player in the nascent Bitcoin market: The company already processes approximately 30 percent of the money going into and out of Bitcoin, and last month alone facilitated 30,000 transactions, the Winklevosses said in a phone call this week. The funding is meant to allow the company to further scale up its staff and product as it angles to become the go-to site for Bitcoin transfers.

The US charge is not a ringing endorsement for the premise behind the Winklevi investment:

The Winklevosses say they were attracted to invest in BitInstant in large part because of its leadership. CEO Shrem is the vice chairman of the Bitcoin Foundation, and CIO Alex Waters previously worked with the core developers on the original Satoshi Bitcoin client. “Charlie has been in the space for a very long time, and he has an impeccable reputation among Bitcoiners. He knows everyone in the space and everyone in the space knows him,” Cameron Winklevoss said. “One of the most exciting things about people who are into Bitcoin is that they’re a really passionate community, and Charlie is a passionate entrepreneur. He would be in that category of someone who lives, breathes, and sleeps Bitcoin.”

Perhaps. However, in retrospect Charlie's biggest crime was not being CEO of JPM or, at worst, HSBC, where money laundering and other criminal activity is not only encouraged but rewarded with soaring bonuses. The good news is that one can once and for all confirm that when it comes to "Justice" in the US, some - those who deal with legacy status quo mandated and enforced ponzi scheme fiat - are far more equal than anyone who dares to think outside the Fed's printer.

Finally, here is a recent profile of 24 year old "criminal mastermind" Schrem via Bitcoin Examiner.

Meet Charlie Shrem. He’s 23 years old and the co-owner of Evr, one of the most famous gastro pubs in Manhatan. The name might sound familiar, since we talked about this pub before, when it became one of the first establishments to receive Bitcoin as a payment for drinks and food in New York City.

But why is Charlie Shrem different from other crypto-millionaires? Because he is now a BitAngel, member of an investment group created to invest in Bitcoin startups. We’ve also talked about this group before here.

Today, whenever someone pays at Evr with digital coin, Shrem gets a little bit richer, but he’s using his money to help others. Everything started in 2011, when Bitcoin became more famous, he bought thousands of Bitcoins for about $20 each. He invested almost everything he had in what could have been a dangerous game. However, since then, the digital coin value has skyrocketed.

At Evr, with his business partner.

After his investment in the bar, he founded the exchange platform Bitinstant. “Infrastructure is what we need. We’ve got to build, build, build–financial software, exchanges, and different payment products”, says Charlie Shrem, who clearly followed his own advice and profited with it.

He might not have the same funds as big Silicon Valley investors, but he has turned into a Bitcoin angel anyway. “The early guys are the ones that run everything. In this space, how long you’ve been around matters”, explains the entrepreneur.

However, we would like to look at him and others and see some kind of Bitcoin ambassadors, the ones that are setting the example and showing how it’s possible to grow once you leave your fear behind and go deep into a new world like cryptocurrency. Because they show what Bitcoin is for real: an opportunity.

* * *

And now, please join us in a moment of solemn silence as we fondly recall the memory of all the HSBC bankers who were thrown in prison for aiding, abetting and profiting from laundering money with known global terrorists...

Comment viewing options

Looks like the DOJ doesn't need to pursue these cases as best as I can see from the attitudes displayed on this blog. The wimps have already scared themselves out of owning Bitcoin and admitted defeat to the money masters.

Another example of a capricious, selective, Gangster-Bankster perpetuating (in)justice system, otherwise known as a Protection Racket for the Status Quo Top 0.1%-ers.

“It's a Criminal system, built by Criminals for Criminals. The business of America used to be business. Now the businesses of Amerika are war, theft, mass murder, and police state crackdown on anyone who objects.” –-Chupacabra

Yeah, been saying for a while that the Bitcoin Foundation idiots were off their rocker to extend a hand to the government to be "partners". This is why Satoshi is anonymous.

The people who don't like what you're doing make damn sure they can use anything against you. Whether these charges were merely manufactured or he's deep in a hell of his own making - it just shows that you can't yell "OVER HERE, YOOHOO!" to the "Eye of Sauron" and expect to come out unscathed.

I full expect the JPMorgan "summit" to result in legislation that will constrict and constrain Bitcoin exchange activity in the USA. No big surprise there. We're in the "Then they fight you" phase of the Bitcoin struggle.

BitCoin is cannot have "leadership" by definition. Same is for Libertarian Party (is really "Libertarian Party"!?) because liberty is self determination but fiat currency (Fed Reserve, BOE, ECB, Banc du Canadia, etc. orBitCoin) by definition is require regulation.

BitCoin is has no backing. Is create from ether but is not create by tangible value. Is no more value than is fiat petro dollar or Ruble or Rupee. But is even less because is not even back by GDP or credit of backing nation.

All bank is at once fearful of embrace BitCoin, but is also fearful of ignore BitCoin.

Member of political class is control by member of bankster cabal, so in shadow, ill speaking is of BitCoin or any competition to monopoly money system.

All attempt is make with light hand to discredit BitCoin, by mockery, by criminal investigation, not immediate to put BitCoin participant in jail, but to create fear, uncertainty, dubiosity and scare other participant or investor.

Make legal argument without equitable basis. Make up new law to "protect" citizenry from self.

Boris is sadly prediction BitCoin is dead and crash by end of year... along with USD, Ruble, Hryvnia, Rupee, Yuan, Yen, Peso, etc. as WWIII is commence.

No, my virtual Russian friend, Bitcoin will not die by years end. The powers that be just want to send a flare that dealing with illegal drugs (THEIR TURF) will not be accepted. If the powers that be wanted to kill Bitcoin they could have done it years ago.

Some idiots say: Bitcoin is a threat to the U.S. dollar.At that time, they forget that Bitcoin is supported by the U.S. Senate and the U.S. Army.http://bitcoinmagazine.com/8531/u-s-air-force-building-bitcoin-payment-g...If someone thinks, that the system which represents a real threat to the hegemony of the dollar will have the support of the Senate and the U.S. Army, he is definitely a full idiot.

Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.

OMG they made SUBSTANTIAL PROFITS!? And made money from GASP! drugs? And money laundering? And they are not part of the Fascist-Corporate Elite!?

THIS WILL NOT STAND!!

They should plead for instant death, rather than torture, then death. What kind of imbecile tries to earn debt instruments, AKA FRN, without being in the club?

I just sent some of my Bitcoin to Czech Republic, converted it into Litecoin on BTC-E and got it back to my wallet in Canada. Whole process took less than twenty minutes, totally outside of banks and governments.

Boris is special talent to pass spaghetti noodle into nose, through nasal passage, and back out through mouth. Is gross, time consuming, extremely full for pain, but is can be done, like BitCoin transactional.

Try it with some encryption sauce next time, a little moar expensive (just like a fee or tax or cost of doing biz, whatever) but makes zeee transaction smoother and doesn't tickle the back of the throat ;-)

The sum total power of all of those .govs, their machine guns, etc. etc., --is less than one brilliant idea"; Viper one, be advised, target claims to have secret weapon defense, "brilliant Idea"; "Viper, check; will open with chain gun from max. range". OH, too bad; your magic didn't work.